Mortgage Terms

■ A mortgage for which the interest rate and the payments change during the life of the loan.

ALTERNATIVE FINANCING

■ Mortgage instruments for both new and existing homes which allow the buyer to qualify at lower than market rate.

■ Among these instruments are adjustable rate mortgages, graduated payment mortgages and buy down mortgages.

AMORTIZATION

■ A gradual repayment of a mortgage by periodic installments.

ANNUAL PERCENTAGE RATE APR

■ The total cost of credit expressed as a yearly rate. It reflects all of your mortgage loan financing costs, including interest paid up front as points and interest paid over the life of the loan.

APPRAISAL

■ An analysis done by a qualified appraiser that puts a dollar value on a property based on a number of considerations, including the condition, location and size of the property.

ASSUMABLE LOAN

■ A loan that can be picked up by a subsequent buyer for a small assumption fee. It saves thousands of dollars in closing

■ costs and loan origination fees. Conventional loans that are assumable usually require a new application.

CLOSING OR SETTLEMENT

■ The conclusion of a transaction, including the delivery of a deed, financial adjustments, signing of the note and the disbursement of funds, which allows for transfer of ownership.

CLOSING COSTS

■ Costs in addition to the price of a house, usually including mortgage origination fee, title search and insurance, recording fees and prepayable payments collected in advance and held in an escrow account. Be sure your sales contract clearly states who will pay these costs — the buyer or the seller.

COMMITMENT

■ A written promise of a lender to a borrower to make a mortgage loan, on a specific property, under stated terms and conditions. The terms of the commitment most important to borrowers are the interest rate on the loan and expiration date of the commitment.

CONVENTIONAL LOAN

■ Fixed-rate or adjustable-rate mortgage that is not guaranteed by a government agency. If you are applying for a conventional loan and your downpayment is less than 20 percent of the purchase price, mortgage insurance is required. The lender will obtain mortgage insurance for you. Mortgage insurance protects lenders against default by borrowers.

CREDIT REPORT

■ Lists the credit history of a borrower on current and previous credit obligations.

DEED

■ A written document transferring ownership of property from seller to buyer.

DOWN PAYMENT

■ A specified percentage of a home’s value paid at closing. Usually a down payment is 5 to 25 percent of the house price.

■ Private mortgage insurance is required at amounts less than 20 percent.

EARNEST MONEY

■ Deposit money given to the seller by the potential buyer to show that he is serious about buying the house.

■ If the deal goes through, the earnest money is usually applied to the down payment. If the deal does not go through, it may be forfeited.

ENCUMBRANCE

■ A legal interest in a property that affects or limits the sale or transfer of property. Examples of encumbrances are mortgages, leases, easements, judgments, and liens.

EQUITY

■ The homeowner’s net ownership of his home, determined by subtracting the amount of the principal owed on the mortgage loan from the home’s market value.

ESCROW PAYMENTS

■ The portion of a mortgagor’s monthly payments held by the lender in an escrow account to pay for taxes, hazard insurance, mortgage insurance and other monthly payments as they become due.

FHA MORTGAGES

■ Loans made by private lenders, which are insured by the Federal Housing Administrations (FHA) GRADUATED PAYMENT MORTGAGES … GPM

■ A type of flexible-payment mortgage whereby the payments increase for a specified time and then level off. Used by first-time homebuyers who expect their incomes to increase over the years.

HAZARD INSURANCE

■ Protects homeowners against damage caused to a property by fire, wind, or other common hazards. It is required by the lender up to the amount of the mortgage to protect the lender’s security interest in the property. Additional coverage on the property can be purchased by the borrower.

LIEN

■ A legal claim on property as security for a debt.

LOAN-TO-VALUE RATIO … LTV

■ The relationship between the amount of your mortgage to the appraised value of your property, the security. If you have a $60,000 mortgage on property valued at $80,000, your LTV is 75% ($60,000 divided by $80,000 = 75%).

LOCK-IN

■ When the borrower informs the lender that he/she wished to lock-in a guaranteed interest rate and points for a specified time period. To keep the lock-in price, the loan must close or settle by the end of the lock-in period. Be sure you fully understand the terms and conditions under which you lock-in your guaranteed interest rate and points.

MORTGAGE INSURANCE

■ An insurance, paid for by the mortgagor, which protects a lender against default. If the loan-to-value ratio is grater than 80% (or in some cases less than 80%) on conventional loans, lenders will require mortgage insurance issued by an independent mortgage insurer. Mortgage insurance protects the lender’s security interest in a property if the borrower defaults on the loan. Mortgage insurance for FHA mortgages is known as the Mortgage Insurance Premium, or MIP. MIP is required on all FHA mortgages regardless of the loan-to-value ration. Mortgage insurance should not be confused with mortgage life insurance, which pays off a mortgage loan in the event of the borrower’s death.